Digital media will drive entertainment industry revenues

Amazon is investing more in it with its new London-based global creative center for its digital film and television offerings. And Netflix, one of the first major companies to find success with streaming video in the U.S., is expanding its digital offerings, too, with its recent plans to offer a streaming video entertainment service before the end of this year in Norway, Denmark, Sweden and Finland. Japanese e-commerce firm Rakuten also demonstrated its faith in the growth of digital streaming with its purchase in June of Spain-based online video company Wuaki.tv.

And now, a new study shows CEOs of major media and entertainment companies think the growth of digital media, such as streaming movies and video, will drive revenue for their companies, too. The 34 bosses who were questioned by Ernst & Young, an international financial consultancy, represent companies that have combined annual revenue of more than $300 billion.

The report, "Opportunity and Optimism," found that half of the CEOs believe digital distribution will increase their total revenue and margins by at least 10% within the next three years. When asked which technologies are driving this double-digit growth in digital, 79% of CEOs said tablets.

Despite the perception by some that media companies are generally wary of the effect of digital and streaming video on the media and entertainment industry, Ernst & Young says bosses are generally undaunted—in fact, they have a positive outlook.

“CEOs are undeterred about the role digital will play in their futures,” says John Nendick, global media and entertainment leader at Ernst & Young. “There is a heightened optimism from a few years ago when industry leaders were more tentative about the potential of digital. All of the CEOs we spoke with understand that digital is probably the single most important factor—impacting their ability to grow both revenues and margins.”

The report also notes that the growing digital "ecosystem" is enabling consumers to discover and share content on a variety of devices—and helping marketers to reach and find out more about consumers in new ways. “The integration of media content, devices and networks creates self-sustaining digital ecosystems,” says Howard Bass, senior partner, global media & entertainment advisory services, Ernst & Young. “The more users interact with content, the easier it is to learn about their habits and for content, advertising, and services within these ecosystems to evolve and grow.”

The CEOs questioned in the report all believe that mobile devices—particularly tablet computers—will increase demand for content. And they were especially bullish about growth of digital media in emerging markets where consumers are just starting to purchase more sophisticated mobile devices and where improvements in wireless broadband infrastructure are creating new opportunities for growth.

As for the challenges facing the media and entertainment industry over the next three years, the overwhelming majority of the CEOs said that global economic uncertainty and consumers’ apparent reluctance to pay for content were the top concerns.

High on the list of priorities for the CEOs, the report says, was to develop of business-to-consumer relationships, eliminating the need for intermediaries such as Netflix or Amazon to distribute content for them.

Other highlights from the report include:

• 84% of CEOs say the role of social networking for their company is primarily to connect with customers—and that building audiences and brands are secondary;

• 76% of CEOs say that the main objective of an “app” is to be part of a bundle of new or enhanced content and services;

• The evolution of digital and online distribution (56%) is the top priority for CEOs followed by creatively differentiating content (44%); and

• 59% of the CEOs say social and interactive media companies are best positioned among all media and entertainment companies to thrive in the future.